XPRIMM News No. 168, November 18th, 2010

Focus on customers!

mihaela.circu@mxp.ro

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Interview with the STELLAR Re Management team
How will the reinsurance market prices evolve?

The 2010 review, the evolution of prices and the trends on the international reinsurance market are presented in an exclusive interview with the Management team of the reinsurance broker STELLAR Re:
Peter AUBREY-SMITH, Chairman, STELLAR Re Intermediaries, Inc.
Denisa DUMITRU, President, STELLAR Re Intermediaries, and CEO, STELLAR Re Europe
Cristina IGNAT, Deputy Manager, STELLAR Re Europe

Click here for the interview!

XPRIMM: Can you tell us your opinion about the Baden-Baden Meetings and their role? What do you see different in Baden-Baden in 2010 compared to the previous years?
Peter AUBREY-SMITH: The Baden-Baden Meetings represent an opportunity for insurers, reinsurers and intermediaries to get together and start discussing the renewals for next year. These meetings have been taking place for several decades, they first started off as the "German marine insurers meeting", many, years ago, but over time this event developed into an insurance conference. This was a very convenient place for marine insurers to meet with their reinsurers, but the marine element was lost once the marine union dissolved and stopped meeting here; however, reinsurers continued to come. This place is just a very convenient central position for European insurers and reinsurers to meet.

Denisa DUMITRU: From my point of view, taking into account that I have been participating in Baden-Baden for 10-15 years, I see now great enthusiasm, as people believe that this year the market will do better and not necessarily due to a possible increase in insurance premiums. Everyone is sure that things are now much better than in the previous years.
Most participants in Baden-Baden are our customers and cooperation with them is going very well, so we have both a business relationship and a friendship.

XPRIMM: Can you summarize the events on the profile market in 2010, taking into account both the positive and the negative aspects? How do you think the negotiations between reinsurers and cedents will take place this year?
Peter AUBREY-SMITH: I think it was generally a good year, there where no major catastrophes, besides the oil rig explosion in the Gulf of Mexico and the earthquake in Chile, and even though these were very large catastrophes, they did not disrupt the reinsurance market to an extent that will determine a raise in prices. I believe that all acknowledge the fact that there is an excess of capacity on the market and this drives rates down. I believe we didn't have a big enough loss yet to really change that situation. Either we will have a big loss or companies will eventually erode and it is unfortunate that this is the only way change will be determined.
Regarding the evolution of prices, it is hard for me to express an oppinion.
We will either be witnessing a slight erosion of the prices or maybe just see them stay at the same level.

Cristina IGNAT: Probably the trend will be like in the previous years, reinsurers try to maintain the price or even increase it, depending on cedents results, and the outcome depends on what the two parties can accept: what the cedent can pay for the reinsurance capacity, depending on the portfolio held and on the results of the previous year, on one hand, and what the reinsurer can provide, on the other hand.

XPRIMM: What do you think is the biggest problem faced by the reinsurance market?
Peter AUBREY-SMITH: I would have to say prices. We need to keep prices up to maintain stability, but on the other hand all reinsurers face stiff competition from their competitors, which forces them to lower the prices.

XPRIMM: Although the year is not over yet, can you tell us how you see the 2010 results of STELLAR Re? What are your company's plans for the next period?
Peter AUBREY-SMITH: It has been a good year for STELLAR Re. As a matter of fact, we participated to the negotiation of the reinsurace program of PAID, we are the broker with the largest share and the placement of that program has brought great success to our company. When we first started the company, a major point of focus was the Romanian market, while CEE was our secondary target. I think we are pretty well established in the Romanian market now and we are undergoing a process of further development in the CEE, as well as in the Central Asia market.

Cristina IGNAT: The Central Asia area is really interesting in terms of potential, in the sense that there was no real insurance penetration in that market and, if educating the population, the potential will be very high. At the same time, it will probably take a while until we get a significant result - it is a long term process. Mentalities are different, even within the region, from country to country.

XPRIMM: What does the Romanian Evening organized by STELLAR Re in Baden-Baden represent and what is the importance of this event?
Denisa DUMITRU: The Romanian Evening had the purpose of bringing together representatives of the Romanian market, giving them the opportunity to work in an informal environment. When we organized the first Romanian Evening, 15 years ago, there was a certain reluctance among the participants in discussing problems and objectives of the Romanian market, a reluctance which, fortunately, does no longer exist in the present.

by vlad.panciu@mxp.ro,
andreea.state@mxp.ro

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Denisa DUMITRU President
STELLAR Re Intermediaries, and CEO, STELLAR Re Europe

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Economy, salvaged by stimulated consumption, BNR official says; Economic growth will also mean resumption of lending activity
The formula that could bring about economic growth in 2011 entails a pay rise to stimulate consumption, Romanian National Bank Chief-Economist Valentin LAZEA says in an interview with "Evenimentul Zilei" daily. Salaries in the public sector will be raised next year, having been cut by 25 percent this summer, with authorities saying a 15 percent rise is just one working version. If wages in the private sector also grow at least by the rate of inflation forecast at about 8 percent this year, the combined growth could secure a minimum rise in demand, LAZEA says. According to LAZEA, the banking system usually resumes lending activity once the first signs of economic grow show and not before. In his interview, LAZEA adds he hopes the credit in RON will grow, all the more so as most of the banks' resources are in RON.
LAZEA also stressed that, if wages in either the public or private sector grow, the chance of having a bigger consumption is small if any at all. The BNR Chief-Economist also showed that 80 percent of the GDP is represented by consumption and explained that it is vital that it should not decrease if we want to register economic growth. LAZEA also noted that the population's rate of indebtedness in Romania is almost double as compared to similar states, with the difference to be re-absorbed during two to four years. In other words, the public will become interested in borrowing after quite a long time, for which reasons banks should orient themselves towards lending to the productive system in the meantime.
Pensions and wages, where to?
However, salaries and pensions may drop next year, according to Antena3.ro. In the preamble to the new agreement between Romania and the IMF sent by the Government to the Presidency, from where it was referred to the Chamber of Deputies, Romania commits itself to implement measures to reduce expenditures with the payment of pensions and wages. Moreover, the pool of taxable incomes is set to be expanded. The document, dated September 9th, 2010, was signed by PM Emil BOC and President Traian BASESCU. Trade unions are no more optimistic when it comes to 2011 wages. Total of 80,000 public sector workers should be laid off because - unions say - the 2011 budget is not big enough to pay their salaries. PM Emil BOC denies what the union leaders say, while the Labour Minister continues talks with the representatives of unions and employers on the unified wage law.
by nineoclock, 16.11.2010

Unemployment rate down to 7.08 pc
Unemployment rate countrywide reached 7.08 pc at the end of October, down 0.27 percent points from September 2010 and 0.02 pc less than in October 2009, according to the National Employment Agency (ANOFM), quoted by Agerpres. A total number of 645,794 jobless were registered at the end of October, 24,794 less than at the end of the previous month. At territorial level, unemployment went up in 11 counties - Olt (the number of jobless people rose by 513), Harghita (441), Bistrita (285), Dambovita (258), Mures (235) and Constanta (233) - and decreased in 30 counties and Bucharest.
by nineoclock, 12.11.2010

GFK: Slight recovery of the Romanians' trust in the economy, in autumn
The people's trust indicator, measured by the Consumer's Trust Barometer, made by GFK, reported, in the autumn months, a slight recovery, after a "hot" summer, characterized by the lowest level of optimism in the past 10 years, however, the number of those sceptic about the general economic conditions remains high, and prospects are fairly bleak, a press release reads. If, in July, the "bleakest" month as regards the Romanians' level of trust in their families' chances of financial recovery, almost three quarters of the respondents considered these poorer than 12 months before, in the first autumn months, there are signs of a slight recovery - only approximately 7 out of 10 of the respondents remain as pessimistic. In September and October, 83 pc out of the respondents anticipate a rise in the unemployment rate and only 5 pc are optimistic about this. Almost 77 pc of the Romanians estimate prices will rise in 2011, while 83 pc experienced, during the past year, a rise in the inflation rate for most products.
by nineoclock, 12.11.2010

Germany stands by Romania joining Schengen
Germany stands by Romania's joining Schengen, like all partner European countries do, German Ambassador to Bucharest Andreas Von METTENHEIM declared for a local news television quoted by Romanian news agency Mediafax. He said that the project of the text will be forwarded to the European Parliament.
The German official declared that the process is going according to the plan, but whether Romania will join on March 2011 or not depends on the general evaluation which is not over yet.
The German diplomat said Germany will maintain its restrictions for the labor market for Romanians and restrictions will be waived starting January 2013. Two days ago, French Foreign Affairs Minister declared that Romania and Bulgaria are not ready to join Schengen in March 2011 and said France prefers to delay the decision.
by hotnews, 15.11.2010

Another 10 km of A3 motorway opened six years after works start
The cost of the sector amounts to EUR 90 million, which BECTHEL may receive from MT next spring at the earliest, according to "Evenimentul Zilei" daily.
A year after the first 42 km had been put into service, PM Emil BOC accompanied by Transport Minister Anca BOAGIU on Saturday, the 14th of November 2010, opened a new, 10-km long sector of the Transylvania Motorway, with the length constructed so far and funded by the state being a little over 10 percent of the total, six years since the project kicked off. Two other kilometres are the links to the national road connecting Campia Turzii to Targu Mures. The new motorway sector is connected by a junction to the one that was inaugurated on December 1st, last year, at Turda. A total of 53 km of the A3 motorway are now ready and usable - from Campia Turzii and the Cluj locality of Gilau, 11 km west of Cluj-Napoca. BECHTEL statistics show a total of 9,000 vehicles run on that particular portion of A3 every day. As for the continuation of work, the PM said, on the 14th of November 2010, he was unable to indicate a direction or a time frame for the following year, but promised that all financing options would continue to be analysed. The Prime-Minister also stated that infrastructure would be among the Government's major priorities in 2011, because it is an important source of economic growth and creation of new jobs. "In agreement with the entire Cabinet, I have decided that the allocations for the BECHTEL project would be made according to the available budget, because our zero priority is to raise the EUR 5.6 billion for land and water transport infrastructure", Transport Minister Anca BOAGIU said. According to the information provided by BECHTEL, expropriation costs for the segment towards Zalau, that will be then continued to the border (Bors) is of about EUR19.3 billion and for the segment running down to Targu Mures and from there to Brasov of EUR 16.7 billion. The PM covered the 52 km in a DACIA Duster and, at the end of the ride, he said he was happy with the quality of the road. The Minister of Transport also criticised the foreign construction companies for resorting to the "shameful" practice of challenging the results of infrastructure contract awards in order to be hired as sub-contractors at a later stage. Apart from the two members of the Government, the opening was also attended by US Ambassador Mark GITTENSTEIN, Ambassador of Turkey, Ayse SINIRIOGLU (Turkish company ENKA is engaged in the motorway construction project as part of a joint-venture with BECHTEL - our note), as well as BECHTEL Romania Manager Mike SWINFORD.
Nevertheless, the infrastructure continues to be an issue raised by constructors as a barrier difficult to overcome in their relations with the Romanian state. The same debate was launched by central bank Governor Mugur ISARESCU, who, on Friday, the 12th of November, in Cluj, blamed the authorities for their inability to build a motorway from Nadlac to the Black Sea in spite of that being "a European route".
The BECHTEL contract does not include any late delivery penalty charges, yet a secret appendix stipulates interest for "late payments". For example, the interest the state must pay for the 10-km long segment from Turda to Campia Turzii amounts to EUR 4.5 million, "Evenimentul Zilei" daily reports. The total cost of the motorway sector is EUR 90 million, money BECHTEL may receive from the Transport Ministry (MT) next spring at the earliest.
Funded with eu money
At the proposal of the Ministry of Transport, the European Commission will finance two segments of the Bucharest ring road connecting the Bucharest-Pitesti and the Bucharest-Constanta motorways, the construction of which is expected to cost about EUR 120 million. "I have been to Brussels to see if the ends of the ring road qualify for European financing. I have come back with good news, the Commission accepted it. The decision is set to be made within the Monitoring Committee at the end of the month", Transport Minister Anca BOAGIU said during a working visit with PM Emil BOC to the worksite of the Northern Bucharest ring road on Friday, the 12th of November 2010. The two segments together measure 20 km in length.
by nineoclock, 15.10.2010

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